After Bouncing Around, Gold Holds Steady With Miniscule Gain

It was a day pockmarked with gyrations, mostly on the downside, but the underlying tensions in the world provided enough demand for gold to rebound from those drops and close with a very small gain. The $1,410 -$1,415 day range it was in before the pit session got rolling was tested three times on the downside, and bent out of shape twice. Nonetheless, gold moved back into the range by the close.

Starting a little above $1,415 at 8 AM ET, the metal slid down to $1,409 before rebounding to around $1,410. Aiding and abetting the slide was a better than expected personal-income gain, with a worse-than-expected rise in personal consumption. Jitters before the release of the National Realtor Association's pending home sales index, at 10:00, drove gold down to $1,408. Those nerves proved to be misplaced, as January's number showed a decline of 2.8% and December's was sharply revised from a 2% increase to a 3.2% drop. Drawing strength from that awful revision, gold leapt up to $1,416.

However, the $1,415 ceiling did it work. Gold descended to around $1,414 and stayed there until morning had turned into afternoon. Then, it slowly declined until it fell out of bed to $1,409 around 1:30. That doleful end to the pit session was mostly reversed as gold headed up to $1,411. Then, the decline resumed as more selling entered the picture; around 2:45, the metal touched a daily low of $1,404.00. Again, the fall was reversed by new buyers coming into the market. Gold climbed back to around $1,411 and stayed there as the battered range ended up holding. As of the end of regular trading the spot price was $1,411.20 for a gain of $1.60 on the day. [Unfortunately, I missed the Kitco Gold Index read for the end of the day - my apologies. The strengthening-greenback component was around +$7.00, while predominant selling was near -$5.40.]

Gold's six-month chart, from Stockcharts.com, shows today's action as stuck in a wider short-term interday range of $1,400 - $1,420:



Despite today's falls, the body of today's candlestick is higher than those of the last four days. Gold's RSI level, found at the top of its chart, is still close to the 70 overbought level. Reversals still make their appearance, but new demand is plentiful enough at lower prices to make them a temporary intraday phenomenon. This underlying strength is keeping a substantial pullback from visiting the metal.

The U.S. Dollar Index lacks such strength, as is evident from its descent below 77. After plummeting early in the morning, the Index stayed stuck in a range between 76.75 and 77.0. A late-morning attempt to get above 77 was defeated, as was a second attempt a little after 1:00. Thus double-topping, the Index slumped to around 76.9. As of 5:30, it was at 76.885.

Its own six-month chart, also from Stockcharts.com, shows a slow but definite erosion of its value in the short term:



The Index has moved below the 77 support level, but not by much as of now. Its Moving Average Convergence-Divergence lines, found at the bottom of its chart, are three trading days into a bearish configuration. Despite the deteriorating technical picture, 77 still has made for a potent support level. If the Index continues dropping, it's likely to do so without much conviction at these levels.

As for gold, subsurface demand surfacing at lower levels has kept it above $1,410. Although shocking (or galvanizing) headlines from the Middle East and North Africa are now absent, tensions still simmer; the same goes for inflation worries. This simmerage has put a flexible floor under the metal for now. Gold might sink below $1,410 in the overnight session, but a test of $1,400 looks unlikely as long as that underlying demand is still there.

California State Museum In Columbia Robbed Of Gold

As gold rises, it becomes more of a tempting target for thieves. Gold that has been safely in the Columbia State museum for decades was robbed after thieves broke in when the museum was closed.

"Someone cut a master lock and entered the museum located at Main Street and State Street inside the park, said Ranger Barry Robertson. "When they entered the museum they ended up stealing several items with gold or individual pieces of gold from the museum. Unfortunately at this time we don't have any suspects."

Robertson says the estimated value of the stolen gold is undetermined at this time.

Whoever those thieves were, they weren't very knowledgable about gold. Also stolen was some fool's gold - iron pyrite.

Australia Still #2 In Gold Production

Mainland China is still the largest gold-producing nation, but Australia is comfortably ensconced in the #2 slot.

"Gold produced from Australian mines in 2010 was worth some 12 billion Australian dollars ($12.2 billion) at the current spot price," said Sandra Close, a director at Surbiton. "Gold remains one of Australia's top export earners."...

...Australian production reached 70 tons in the final three months of last year, up 12% on the year and 3% on the prior quarter.

It may surprise those who think that greenieism has a lock-hold on federal and state governments, but the United States is in third place. U.S. mines produced an estimated 20% more than South African mines last year.

Vietnamese Government Cracking Down On Gold Trading

Deciding that gold speculation is both detrimental to economic activity and a downer for the Vietnamese dong, the Vietnamese goverment is imposing a gradually-enforced ban on trading of gold bars. People who already own them will be allowed to keep them, but will only be able to sell them at outlets approved by the Vietnamese central bank.

A statement from the central bank said tough measures had been adopted because the accumulation of gold was not benefiting the economy.

Instead, it was increasing gold prices and the VND/US dollar exchange rate.

Gold prices have affected dollar prices over the past 10 years, when the demand for gold soared due to speculators buying gold to pay debts.

In addition, gold smugglers would amass US dollars to illegally import gold while dollar traders would take advantage of this opportunity to drive dollar prices higher.

Also, the prices of US dollars sold on the local market did not rise when domestic gold prices equalled world gold prices.

When domestic gold prices were far higher than world prices, US dollar prices would climb.

The central bank said tightening gold-bar trading activities and measures to stabilise the market would help change people's habits and mobilise large amounts of idle funds to serve business and production.

I'm tempted to say, "once a Communist always a Communist." Only, the Vietnamese authorities are acting like other governments that interprets a gold rise as a veiled criticism of economic policy.

I note in passing that it takes a lot of dongs to buy a loaf of bread. As of today, one greenback wiill get you almost 21,000 dongs.

Report Says Rise In Jewelry Demand Last Year Likely Anomalous

The World Gold Council reported last year that jewelry demand rose in tonnage terms despite gold rising nearly 30% in the same timeframe. But, a Reuters analysis says that the rise is likely to be replaced by a more-usual decline in tonnage terms as prices keep going up.

"Higher prices tend to mean less jewelry demand," said Mitsubishi precious metals analyst Matthew Turner. "People buy less because the price has gone up, and they tend to sell more back as scrap. There is a double effect."

One market is expected to be an exception -- China. Last year China's jewelry demand rose by 14 percent, a healthy gain that was still outstripped by Chinese buying of investment products such as bars, which leapt 88 percent.

Philip Klapwijk, chairman of metals consultancy GFMS, said the jewelry chiefly being bought in China is top-quality 24-carat merchandise, much more than 18-carat.

That suggests the driver may be investment rather than the traditional use of jewelry as adornment....

There is anecdotal evidence that Chinese demand counted as jewelry is de facto investment, jewelry being bought because of shortages of gold bars. In developed economies, high gold prices have pushed down jewelry demand by double digits. Indian jewelry demand picked up the slack last year, but that demand is volatile from year to year. Over the longer term, jewelry has dropped from 75% of total demand (in 2004) to about 50% (2009.)


What's evident from the report is one category leaking into the other. Some jewelry demand is for investment, and I believe this holds true for India as well as China. On this basis, investment demand may have rose in tonnage terms for 2010.

No matter how it's sliced, the increase in overall gold demand outpaced the supply increase last year. Given gold's rise, that result certainly counts as unusual. Whether it's anomalous will have to wait for the 2011 report.

Pending Home Sales Fall In January For Second Straight Month

The National Association of Realtors reported at 10:00 that pending home sales fell 2.8% in January, which wasn't far from expectations. On the other hand, the revised estimate for the previous month was far worse than the previously reported 2% increase. Instead, December's fell by 3.2%. The NAR's been adjusting its model to wean out overoptimism, which explains a large part of the drop. Pending sales are below where they were in January of last year, but are well above the June trough.


Gold, already sunken to $1,408 by that time, liked the news enough to sharply reverse and ascend to above $1,414. Despite that earlier drop, the $1,410-$1,415 range is still in place.

Indian Physical Gold Buying Edges Up As Price Falls

According to a Reuters report webbed by the Economic Times, Indian gold buying notched up a little due to a lower price caused by a stronger rupee. Traders took the opportunity to stock up for the wedding season.

"I covered for 70 kgs of gold from morning at $1,400 (an ounce)," said a dealer with a state-run bullion importing bank.

The wedding season now on, traders are more likely to open their wallet.


I should say that spot gold never reached the price given by the above dealer; it seems to be a misprint or other kind of slip.

Gold Stays Above $1,410, Mostly, On Continued Midseast Ferment

Despite worries of a jump to 2.5%, Eurozone inflation for January came in at 2.3%. Expectations were for 2.4%. The core rate was also 0.1% below expectations, coming in at 1.1%. This result was still above the European Central Bank's target. Interestingly, austerity-plagued Ireland had the lowest rate, 0.2%. The new Irish Prime Minister Enda Kenny, winning an almost unprecedented upset victory, has promised to renegotiate the terms of the EU bailout package. Handicappers so far are giving him long odds.

Gold didn't react much to the inflation number, just as Irish government debt securities didn't react much to Mr. Kenny's promise. Unlike those securities. the metal did react to the Irish election result. Coming out of the gate last night, it jumped up almost five dollars an ounce to $1,415. For the rest of the session, that barrier would be too formidable to cross durably. Making a go around 2:00 AM ET, gold got up to an early-morning high of $1,417.60 before the London market opened. Then, it turned around and slid down to a low of $1,406.70 before reversing and zerioing in on $1,410. The bulk of that slide took place before London opened. Staying around $1,410 until 7:00, the metal then reversed to $1,415 in a one-hour climb that stuck for the moment. As of 8:17, the spot price was $1,414.60 for a gain of $5.00 since Friday's close. The Kitco Gold Index attributed -$1.20 to predominant selling and +$6.20 to a weakening of the greenback.

The U.S. Dollar Index did slide early in the morning at about the time gold reached its nadir; the Index's sudden drop helped bring gold back to $1,410. Despite an initial rise up to 77.4, prompted by the same bottom-of-the-mornin' reasons as gold's initial ramp-up, the Index spent most of the session declining. After a bounce off 77.05, which reached 77.2 as of 3:45, it tumbled below 77.0 in the next forty minutes. The Eurozone inflation number was the most likely reason for the tumble, whose nadir came an hour later. Settling down into a slightly declining range, it bounced off the 76.8 nadir level twice. As of 8:24, it was at 76.85.

A Bloomberg report said gold may advance on the now-familiar reasons: inflation worries and Mideast turmoil. Gold went up with oil as the U.S. government promised assistance to the rebels.

“Inflation expectations are certainly anchored,” Andrey Kryuchenkov, an analyst at VTB Capital in London, said today in a report. There needs to be “escalating geopolitical tensions for sustained gains to December’s all-time highs and beyond.”...

“Amid ongoing unrest in North Africa and the Middle East, it is still quite astonishing that the price of gold has not profited more,” Carsten Fritsch, a Frankfurt-based analyst at Commerzbank AG, said today in a report.

[Of course, that relative tepidness means less of a letdown later - DMR.]

The article also notes that holdings of ten gold ETFs tracked by Bloomberg rose 1.22 tonnes on Friday to 2,011.32 tonnes. Exports of gold from Egypt are now subject to controls, tight enough to make for an effective ban, and will be so until June 30th.

An earlier Reuters report ascribed gold's rise to Mideast tensions as reflected in rising oil prices.

"The sentiment is still generally bullish," said a Singapore-based dealer, "If oil keeps going up, people will continue to bet on gold, as a hedge against inflation and against risks caused by the unrest in the Middle East."...

"We haven't seen increasing volatility in gold as we see in the oil market," said Yingxi Yu, an analyst at Barclays Capital.

"It does seem like momentum in gold is not as strong. This time around, even when things are bad, gold hasn't been such a popular investment, because things are looking brighter in the global economy."

As a tightening cycle in Asia begins, physical gold demand in Singapore has been relatively muted. Holdings in the SPDR Gold Shares Trust were unchanged Friday at 1,211.57 tonnes.

A Wall Street Journal report said gold crept upwards on Libyan tensions, but noted that further turmoil is largely priced in.

Though gold is likely to break its record of $1,431.30 a troy ounce in "a matter or weeks or days," it is unlikely to approach these heights with the same zeal as recent weeks unless the situation in the Middle East suddenly worsens, said Standard Bank analyst Walter de Wet....

But with gold's attention so firmly on the oil market, a change in oil's trajectory could quickly erode gold sentiment, Mr. de Wet said. Oil prices were stable on Monday.

"If oil prices come off, gold will come off with it," he said.

The article also quotes Edel Tully as saying the Egyptian ban on gold exports will be helpful to gold because it cuts off scrap sales from the region. In the last two years, Egyptian sellers have sent a lot of scrap to the market.

January personal-income data showed a jump of 1.0% with spending up only 0.2%. The jump came as a result of reduced Social Security taxes, which evidently are being saved. The income jump was above expectations while consumption expenditures were below. In the same timeframe, the president of the New York Fed assured the public that the Fed won't let inflation get out of hand. Gold retreated from $1,415 just before regular trading began, content to stay in its $1,410-floored range. Both the data and the speech played into an already-established pullback. As of 8:50, the spot price had settled down to reach $1,413.00 for a gain of $3.40 since Friday's close. The Kitco Gold Index assigned -$3.90's worth of change to predominant selling and +$7.30's worth to greenback weakening. The U.S. Dollar Index continued muddling along without breaking 76.8; as of 8:52, it was at 76.82.

Gold's still steady, and it isn't benefitting much from continued Mideast unrest. As I noted above, that's better for the metal because it means lesser volatility when the world reverts to a newer normal. The metal's still stuck in its $1,410-$1,415 range. The range might be tested during regular trading, but the week's start suggests the testing won't go very far. Based upon early pit session activity, the testing is going to come at the lower end.

Cut And Run

Jack and Nadine Moreau, a successful professional couple, are well nestled into the upper-middle-class success track. So are their two kids. Although financially battered, they were well on the way to a comfortable retirement while in their forties. The trouble was, their retirement plans informally included a future inheritance from Jack's widowed and cantankerous father Frank.

Frank does things his own way; always has. For the last four years, he's put his money in gold. Nadine, having well-researched ideas of her own, aims to set her father-in-law straight.

• Preparation
• Execution

Preparation

“We have to do something about him,” Nadine Moreau insisted. “He’s endangering our retirement.” Her chin jutted out more than usual as she looked up. Surrounded by light-brown wavy hair drooping down to just above her shoulders, her body was buttressed by a cheerful printed dress that optimistically promised lightness and ease. She was, she told herself, thinking of her two children.

Her husband, Jack, had been a hard one to tame at first – but she had patiently gone to work. When she had first met him, he had been a heavy smoker. Her initial efforts to get him to quit hadn’t been of much use, until public pressure elicited by guiding laws had come to her aid. Once he could no longer smoke at work, he gave up and started relying upon nicotine gum. Her regaling had turned into encouragement. Eventually, he got off the nicotine habit entirely.

After that, it was easy. Relying on the media, she adjusted the diet of her flock according to what the press recommended as healthy. The shifts in the wind, she forgot.

Aided by the Internet, she had asked around about her father-in-law’s distressing habit of buying gold. They had no worries on the real-estate front now, although they got the frights when the recession bit and some time after. Jack had settled into accountancy, and had had good reason to fear for his job when the economy had crashed down. They weren’t sparing management like they used to. Through harder work, and toughening up, he had stayed employed and now enjoyed a measure of security. The house they now had, a so-called McMansion, he considered a bargain so he splurged. The decision proved to be one they both could handle, although it had been a squeeze at first. Two years had brought no disaster, despite Jack’s occasional nerves about the purchase: everything had worked out well on the real-estate front.

But not on the retirement front. Nadine trusted that their house would make up a substantial chunk of their retirement, but Jack wasn’t completely convinced. He kept his opinion to himself, as his wife needed to believe. Also, they had more pressing worries on the equities front. Their portfolio had been decimated a few years ago; many of the stocks they had jointly agreed to buy were slaughtered to the tune of 70, 80, even 90%. Nadine, after getting through the anguish with Jack, had turned to her favourite mode of redress. After reluctantly concluding she had no legal or arbitrative recourse, she had discovered asset allocation. Although the ride was less bumpy, they were nowhere near getting back to the peak of net worth they had enjoyed five years prior to now.

It was sad in its own way. She had come from a blue collar neighbourhood, but had never fit in. The boys cut each other too much slack, she found, and their destinies were often tragic. She being what she was, her now-passed-away parents had encouraged her to go into teaching. Thanks to good grades and a life lived according to plans, she had won an appointment to a charter school for bright kids. They were largely a pleasure to teach, their attitudes being a lot like hers.

Both she and Jack were in the living room of their house, with their two children away for the moment. The curtains were luxurious purple, gathered into folds by an extended ribbon in the same fabric. The house itself was more than four thousand square feet, with a 55 by 130 foot lot surrounding it. Granite tabletops were in the kitchen. Nadine had no qualms at all about them and the other luxuries to be enjoyed: she and Jack deserved every one of them. So did their kids, John and Helen.

The entire family fit the image of an upwardly mobile, upper middle class success unit. Their worldly gains reinforced her steadfastedness and self-regard. The difference between her and her old high school peers was easy to spot: she planned, she followed through, she took expert advice as received through the media, and she did not allow herself to deviate from her plans. In her own word, she showed self-discipline.

But her and Jack’s retirement was hampered by his father. Frank Moreau had a distressing similarity to the boys she had escaped from in her old neighbourhood. She had at first been relieved to see him, as he was a successful businessman who had the knack of encouraging people into his convenience stores. Despite his opinionated and somewhat anarchic nature, he must have been organized. There was no other way to run a business, so she believed. His take-life-as-it-comes orientation, she had dismissed as self-advertisement.

Until, well into her marriage to his son, she had finally seen that Frank was his persona. Ever since then, she had been watching him for irregularities. His success, she now chalked up to luck.

Granted that he had been right a few times. Retiring and selling out ten years ago, he had been cantankerous enough to insist that things would fall apart six years later. He sold his stocks and sat on his money for a while. Then, he began buying gold bullion.

Frank’s gold hadn’t escaped unscathed, but he wasn’t fazed. Jack had just shrugged it off with a smile, trusting his dad, but Nadine had insisted that there was something wrong. Not having been close to Frank in the way Jack had been, she believed she possessed the higher vista of disinterestedness. Nadine had looked at what the goldbugs had said; yes, she did. What she read - a combination of doomsaying, blaming the central bank, gloating over the collapse, anarchistic fantasies – had made her wonder about her father-in-law’s sanity. After being reassured by her husband that it was just his father being his father, she kept her doubts to herself. Until now.

“Don’t be an apologist again, Jack. You know very well that he’s fallen in with a bunch of very creepy people. Do you know what they write?”

Jack was now middle-aged, with a little insulation in his face and more in his stomach, but he still showed the fine-featured handsomeness he had as a young man. And also, a hint of his happy-go-lucky youthfulness, which his dad had been glad to subsidize. Although he was long resigned to growing up, a small part of him missed the good old days. He and his friends had had their own personal answer to the “Highway to Hell” back in ’80 or so. They had all grown up, fit in to the acquisitive lifestyle, and had made the sacrifices that came with it.

“Nadine, he tends to know what he’s doing.” She saw her husband’s face struggle between sadness and a grin. “Don’t you remember him telling us to get out of those stocks we were in? I should have been that crazy.”

“This is different,” Nadine pressed on. “He was lucky. He’s now fallen in with a bunch of doomsayers who think the world is going to end.” Spreading her hands out, she made it personal. “They think my job is illegitimate!

“And they’re taking advantage of an old man. Just think of it: he goes every week and buys an ounce of that yellow metal. He’s done it for four years! What kind of balance is that? He made it clear: he buys nothing else. That’s a bad sign; we both know that.

“If he were so clever, why didn’t he buy stocks two or three years ago? He could have.”

Her husband shifted in his plush black leather seat, in a manner that would suggest discomfort had he not been inured to it. He was worn down to fidgeting, like Nadine’ students fidgeted. For the inveterate fidgeters, she recommended Ritalin.

Guessing at her motive, Jack replied, “It’s still his money. We can’t take it from him.”

Oh yes we can, she thought, but the time wasn’t right to say it. The safety of her brood was part of her motive, but only part. The other part was a mild outrage. Her father-in-law had flouted rules meant for everyone’s safety. An attempt by her to blame the tobacco companies, he dismissed. He had paid for his habit with a case of lung cancer. Surely, that should have made him change his ways. He still acting in odd ways – didn’t it suggest mental illness? Non compos mentis?

“We can ask him. We can make him listen to reason, just the two of us. The kids, they’re busy. We won’t look as if we’re trying to charm him. Instead, it will be a sensible adult conversation.”

Execution

Frank’s house, the same one Jack had grown up in, was a bit smaller and more rococo in design. Despite subtle entreaties, he had refused to go live in a luxury nursing home. His son may be middle-aged, and he himself may be an old cruster, but he was damned if he was going to live in a hospital! He’d only go from his home if he were carried out. He may not be all that husky, but that didn’t make him weak.

He saw the year-old SUV pull in and wondered why his daughter-in-law would have allowed for it. Probably for appearances’ sake.

Since they had called ahead, he knew they were coming. Since he was he, he didn’t clean up. That was for the maid service. Besides: if someone wouldn’t cut Frank a little slack in the cleaning department, why would he want him around?

Although his son didn’t say so explicitly, he knew that it was about the gold. The kids couldn’t see it. They just didn’t see.

When the stock market cracked a few years ago, as he expected, he knew the game had changed. Having been burned in ’66, he had gone back in. Same thing with ’70 and ’74. Thankfully, he hadn’t counted on the stock market to put together enough money for his business: ’66 and ’70 had taught him that much at least. Frank hadn’t heard about gold until 1979, and the chart he saw had pained him. Had he known when he was floundering around in the stock market, he could have made some serious money instead of having his shirt flayed on a regular basis. He hadn’t shifted at the time, preferring to dawdle and see how it went, and was rewarded when he saw gold collapsing in the early eighties. Missing that slaughter had taught him another lesson: when everyone thinks an asset can’t go wrong, get out! That’s why he sold his stocks four years ago.

Since the subsequent crash reminded him of those old times, he had looked at gold again. This time, he liked what he saw; so, he began accumulating it. Sure, the fellows boosting it were a little off the rocker, but people should be. If everyone were on the rocker, what kind of a dull world would it be?

With that thought girding him, he got up when the doorbell rang. His own living room was less opulent than his son’s, with plain curtains and a green couch with a white love seat and blue carpet, but that’s the way he liked it. Moving more slowly than he wished he could, he reached the door.

Jack smiled automatically when he saw his dad behind the door. The old man, now a little shorter than he, had the same old grin on his good old hatchet face. The chemo-caused bald head didn’t detract from his old man’s cheerful welcome.

Frank had good reason to smile. His son may have filled in a little and gotten wrinkled a little, but he could still see the lad that booted off in a Chevy Camaro back in his good old days. He had taught his son to scoff at the people who had called it a “Gino” car, and scoff Jack did. Doing so had been good for his development, as it taught him that he could make his choices and not be swayed by the often-unconsidered opinions of others. It had helped immeasurably when the “Gino” had become an accountant.

Nadine was smiling too, but more deliberately. She was a little plump too, but it didn’t seem to slow her down any.

“Come in, both of you,” he invited. Standing aside, he ushered them into the living room. They sat down on the love seat, and Frank took his standard position on the couch with arms casually spread out.

“So what’s the bother?”

Jack started. His hesitancy said to his dad that he was more the transmission belt than the engine. “Dad, we’ve been talking about the gold you’ve been buying. We think it may be a bit excessive.”

The delight vanished from his father’s eyes. “So that’s what you say,” he replied to Nadine.

Not picking up on the hint in his eyes, she launched into her spiel. “I’m concerned about you getting into something that might not be good for you. That routine you’re in –“

“Alzheimer’s?” Now Frank was looking at his son, his eyes showing something that Jack either missed or ignored.

Trying to be diplomatic, he continued. “Nadine, I like you because you go your own way. I taught Jack that a long time ago, and he’s much better off for it.” She folded her hands waiting for what came next.

“But you also think your own way should be everyone’s. That’s something you never seem to get over.”

Upon hearing that, her eyes hardened a little. It wasn’t as if she had come up with plans on a whim! She researched carefully, selecting a path that took in more than her own special needs. Trying to be diplomatic herself, she replied, “Some people prefer to live a life guided by information that implies an objectively better path.”

Sighing, and not wanting to start up a confrontation, he turned to his son. “Remember how you used to jump on every band that came along? I admired it, because you showed you knew how to keep in the swim.

“But it’s not so admirable when you’re on the way to fifty. You’re not really grown up until you stop trend-chasing.”

That got the couple looking at each other. Frank already knew what the bond was between them; tweaking it was his way of getting the message across. They should lay off his gold!

“It’s a little more than that, Dad,” Jack said uncertainly. Nadine had gone quiet for the moment. “We look things over. It’s not like chasing the music.”

“Maybe,” Frank replied quietly as he sensed an impasse, “but I see the same kind of trend-chasing in your ‘research’. Remember when oat bran was the thing? What happened to that?”

“It was superseded,” Nadine jumped in, politely.

Frank now looked concerned, as indeed he was. “Nadine, it was debunked.”

Now not wanting to push, he put on a cheery face as he moved his arms forward. “Tell you what: I’ll make you two a deal. You’re bothered by my gold? Okay; you have a right to your own take on the matter.”

Pointing at his own chest, he continued. “Now, me. I’m bothered by your house. It’s too expensive, and I don’t see how you can squeeze it to get back the money you lost.” Nadine made a movement to object, but a look from the older man got her quiet.

“So let’s do a deal. I’ll sell my gold – all of it – if you sell your house. If you move to something half that monster’s price, I promise I’ll keep my money in certificates of deposit and leave it safe.” Both Jack and Nadine, each in their own way, knew Frank meant what he had just said.

Having finished his proposal, Frank let his arms spread on the top of the couch again. “You may not know, but there’s more. I do go to the coin shop every week because I like the clerk. But I’ve also ordered a few 400 ounce bars off the commodity exchange. They kill you on the delivery charge, but the price is better.”

His disclosure got Nadine shooting a side look at her husband: it was worse than they had thought. But, his words relaxed her once she had shuffled through her memory. No, his gold buying wasn’t a sign of Alzheimer’s after all. It was a lonely old man’s cry for help. Having categorized her father-in-law in this way, she conceded that he had a right to go his own path. Even if it jeopardized the future. The poor old man couldn’t help it.

“All right,” she said levelly, making a motion as if to get up, “you can keep your gold.”

“Why thank you,” Frank replied in a courtly manner. Only Jack picked up on the subtle mockery therein.

Now, Nadine got up. “Sorry, but we have to wait for John to get back from swimming practice.” It was necessary for their son so he could get into an elite college. Jack got up too, with a shade of disappointment on his face. Only his dad saw it.

---

They now in the car, Nadine let loose a little. “I can understand why a lonely old man would do something like that, but we’d better keep an eye on him. We don’t know what he’ll do next.”

“Nadine, he suggested selling the house. He didn’t ask us to move in with him.”

Yes, Jack had hit the spot. “It wasn’t appropriate from someone putting his money into a hunk of metal that no-one had any use for,” she said staring straight ahead at the oncoming road. “It’s awfully high.” Looking over at Jack got him supplying the figure.

“Yes, that’s too high. And we got a bargain on our house!” They had; her calculation and planning had paid off. “And we’re sitting on a profit now!

“I mean, opinions are one thing – but don’t you think he was back-seat driving a little?” Now showing her offence plainly, she looked over at Jack who didn’t reply for a moment.

It took a sigh for his brain to supply him with the right answer. “Don’t worry, sweetie, my dad will turn out all right. He usually does.

“Besides, why worry about him? We’ve got our own investment and it’s doing fine.” Bonding, he recited the reasons why a McMansion made sense for them. As she lightened up, his grin reappeared. Hearing a paraphrase of her own decision process with that grin melted her.

It was his coup de grâce that got her wondering how tight a fit her wedding dress was:

“And the best part is, the real-estate people are saying next year will be better than ever!

He leaned back in the driver's seat and smiled. “Yep, we’ll be rolling in the green come 2005.”

Gold Ends Week With Decent Daily Gain

Despite the Middle East region calming down, with fears of an oil shortage abating, gold managed to close with a decent single-digit gain today. The mid-afternoon drop the metal went through in recent days proved to be absent today; instead, it ended up higher than its price at the finish of the pit session. Today's gain helped gold rack up another gain on the week: for this one, it put on $20.50 or 1.48%.

The metal began the pit session by rising from $1,404 to above $1,406. Fluctuating around that level, it sunk at 9:45 AM ET to $1,402 by 10:00. Interestingly, that drop was in anticipation of a comsumer-sentiment number that proved to be the best reading in three years. The whole report, though, showed sentiment in lower-income households dropping. This disconnect, gold picked up on: it rallied in the subsequent hour to its daily high of $1,412.80. Turning downwards just before 11:00, it fell in two stages to $1,404.

Rebounding, it got back up to $1,408 but further gains eluded it until it fell out of bed. After recovering, it jumped up to $1,410 before settling around $1,409. Despite a trip-down just before 4:00, and a blip-up above $1,410 later, it came in for its weekend rest at just below $1,410. As of the end of the week, the spot price was $1,409.60 for a gain of $7.50 on the day. The Kitco Gold Index attributed +$9.90 to predominant buying and -$2.40 to a strengthening greenback.

The metal's six-month chart, from Stockcharts.com, shows today's action mostly undoing yesterday's drop:



The chart still looks bullish, although the pause gold's made doesn't look like a pause that will refresh. Some reassurance has come from the fact that it was up even though Middle-East-related fears are starting to subside. The metal's still a fair bit away from its record high of $1,431.25, and current action suggests it won't make a new record soon.

As for the U.S. Dollar Index, it upended its recent intraday trading pattern by putting in a good early morning. Starting a rally at 77.115, it bobbled back at 8:40 but shook off that stumble and rose above 77.4 by 10:00. Then, itself affected by the sentiment-index number, it turned round and dropped in a decelerating slide down to 77.25. Its drop influenced gold's rise. Fluctuating around 77.27 during early and mid-afternoon, it fell a bit and ended the week at 77.22.

Its own six-month chart, also from Stockcharts.com, shows its recovery keeping it above the important 77.0 support level:



Today's candlestick was almost the same as yesterday's, indicating that the Index reversed yesterday's drop today. Its chart still looks bearish, but it avoided a further drop today which might have kick-started another sustained decline. The Index may muddle in the low 77s for some time.

As the week ends, gold's kept most of its gains. Its weekly gain streak is the best it has notched up since last fall. Gold looks toppy on a short-term basis, but its overall uptrend is still solid.

In closing, I'd like to thank you for stopping by and seeing what I've written (and pasted) here. Have a great weekend, especially if you're due for a thaw.

Interesting Picture Of A Gold Nanoparticle

The picture isn't of the real thing; it's a mock-up model. The nanoparticles have been synthesized since the 1990s, but their atomic structure hasn't been known until 2007.

From NanoWerk, here's a picture of the future:



The gold particles are yellow.

Australian Gang Of Two Charged With Stealing Gold

What make this story unusual is that the two were miners, employees of the mine they stole from. As reported by the news department of the Australian Broadcasting Company,

Two Kalgoorlie-Boulder mining company employees will face court next month for allegedly stealing gold worth up to $1 million.

Police allege the men, aged 29 and 32, stole the gold from the Jundee mine, 50 kms east of Wiluna on Monday and hid it in nearby bushland.

The crime they were charged with was "stealing as a servant."


Truth ain't fiction and fiction ain't truth, but I wrote a short story for this blog whose plot revolved around a more elaborate gold theft - one that smacked more of Mexico than Australia. You'll find it here.

A Fascinating Look At Gold's History In U.S.

NumisMaster has webbed a fascinating history of gold and the U.S. by David Ganz. Of special note is his history of how the prohibition on private gold ownership was overturned, because he was one of the players in the debate.

Starting in the early 1970s, a group of “gold bugs” began to advocate private gold ownership rights and eventually they found the ear of some congressmen and senators who bought into their fairness theory and the claimed illegality of the gold seizures and recalls of the 1930s.

In a truly bizzare episode, they tacked a resolution allowing for private gold ownership onto the foreign aid package that the Nixon Administration wanted. Presidential vetoes were threatened and an alarmist attitude prevailed at the main Treasury building.

Into the middle of this stepped Mint Director Mary T. Brooks. In office since 1970, in 1973 she was promoting bicentennial coinage. I had an interview with her in which I asked her about the possibility of a gold commemorative coin for the bicentennial, and she was quite positive about it. That was real news.

A couple of hours later, I got a call from her key aide, Roy C. Cahoon, interdicting the entire conversation – unless I was willing to drop the gold coin remark. I did and the Republic was safe. But Mrs. Brooks made the same comment weeks later to Russ Rulau, a competitor, then editor of Numismatic Scrapbook, and he printed it. The Republic was still safe and, for me, a valuable lesson learned; the government didn’t always know what was best....

Standing up for the right to own gold and for the medallions was President of the American Numismatic Association Grover C . Criswell Jr. I accompanied him, and wrote his written testimony, in my capacity as ANA legislative counsel.

Criswell’s summary of five reasons why gold medallions were appropriate (it being obvious that Congress was at least several years away from authorizing gold coins): (1) it helps the balance of payments; (2) it provides clear domestic economic beneficial effects from the sale; (3) it denies $600 million in assistance to South Africa; (4) it returns gold to the people who gave it to the government in the first place – the American people; and (5) it raises more money than the government’s auction plans for gold bricks in $80,000 units and above....

The article opens with a description of how the gold price is fixed in London. Only five representatives of five firms are responsible for the fixing, and it's done by conference call now. Earlier, there was a physical meeting at the Rothschild bank.


The U.S. prohibition was pretty much confined to the U.S. It's always been legal to own gold in Canada, and the flagship store of the Hudson's Bay Company used to sell sovereigns for ten Canadian dollars back in the 1960s. Half-sovereigns were a fiver. Until the prohibition was overturned, the only North American exchange to trade gold futures contracts was the relatively minor Winnipeg Commodities Exchange. A 400 oz gold contract was introduced in 1972, prompting the Exchange to change its name from the Winnipeg Grain Exchange.

Consumer Sentiment Rises To Highest Level In Three Years

The University of Michigan Consumer Sentiment Index rose to 77.5 in February from 74.2 in January, beating expectations for 75.4. It was the highest reading since 2008. Bumping up the number was an improved outlook from higher-income households. The number for current conditions jumped more than for consumer expectations. Higher gas prices didn't eat that much into the number, but the finding for lower-income households showed a drop.


After bobbing around $1,406, gold fell to a little above $1,402 just before the number was released. Once it hit the Net, the metal pulled up to $1,406 again. It's odd that good news would push gold up, but that rise was tied to a slight drop in the U.S. Dollar Index after the number was released. Prior to its release, the Index had rallied smartly for more than an hour up to 77.4.

Perhaps gold traders are beginning to see potential inflation in good economic news.

DRC, Kenyan Governments Investigating Rumours Of Smuggled Gold

About 80% of gold exported from the Democratic Republic of the Congo (DRC) is smuggled. Right now, the DRC and Kenyan governments are investigating rumours that 2.5 tonnes of gold were smuggled into Nairobi.

Kenyan President Mwai Kibaki agreed to allow a team of Congolese experts to stay in his country to investigate claims that a shipment of Congolese gold had arrived in the East African nation illegally, Congolese Mines Minister Martin Kabwelulu said in an interview today in the capital, Kinshasa.

“There are documents saying there was 2.5 tons of gold but they were false documents,” he said. At today’s price in London, 2.5 tons of gold would be worth about $113 million.

80% is a lot, and suggests the DRC government isn't that effective in cracking down. International pressure, linked with the new publicity blitz for "FairMined" gold which eschews conflict gold, is the most likely reason for this investigation. It remains to be seen whether publicized sweeps like this one will change anything.

Indian Physical Gold Buying Comes Back With Price Slump

According to a report webbed by Sify Finance, Indian gold buying was stimulated by a rise in the rupee and a consequent price drop for Indian buyers.

There is buying today, I placed orders for 100 kg at $1,406/1,408 (an ounce)," said a dealer with state-run bullion importing bank, adding "there could be buying if prices fall to $1,387/1,401."

Whether those bargain hunters get their wish is for the weekend to decide.

Gold Holds Above $1,400 As Inflation, Mideast Concern Continues

More and more evidence of global inflation is accumulating, even in supposedly resistant places like Germany. The Russian central bank has raised its discount rate to 8%, reversing a series of cuts becasue of higher inflation. The rate there is now 9.6%. Closer to the United States, inflation in three large states of Germany have tipped above the 2.0% threshold of EU concern. There's talk about the Geman inflation rate being 2.2%, and the EU's being 2.5%. Although gold dropped just before and right after the London market opened, it held above $1,400 because of inflation fears as well as Mideast turmoil.

After overnight trading began, it started creeping up. Initially slow-starting, it got up to as high as $1,411.00 just before London opened. Falling swiftly, it sunk in the space of two hours to a morning low of $1,398.90. Then rebounding, shortly before 5 AM ET, it stayed in a range bordered by $1,400 and $1,405. As of 8:13, the spot price was $1,403.20 for a slight gain of $1.10 on the day. The Kitco Gold Index attributed +$3.80 to predominant buying and -$2.70 to a strengthening greenback.

The U.S. Dollar Index slid down slowly last night, bottoming at 86.95. Shortly after gold began its decline, the Index picked up and shifted into rally mode. Reaching almost 77.25 by 6:05, the Index sunk back and surmounted 77.25 later. As of 8:20, it had pulled back a little to reach 77.22.

A Bloomberg report attributed gold's bounceback to continued tensions in the Middle East and North Africa.

“As protests in Libya intensify, we expect gold and silver to be underpinned by flight-to-safety demand,” James Moore, an analyst at TheBullionDesk.com in London, said today in a report.

Despite that renewed demand, holdings in ten gold ETFs tracked by Bloomberg fell 5.29 tonnes to 2,010.1 tonnes yesterday.

An earlier Reuters report also ascribed gold's recovery to Mideast tensions as well as to oil.

"The gold market is still very much influenced by unrest in the Middle East and North Africa," said Ong Yi Ling, an analyst at Phillip Futures. "The spotlight remains on the region. If tension escalates, we could see gold continue to push higher."...

"Gold is likely to go through some consolidation, if not correction," said Hou Xinqiang, an analyst at Jinrui Futures, "The influence may ebb quickly if no big story breaks -- countries split up in violence or the region fell into complete chaos."

Another authority is quoted as saying that, if Mideast tensions are factored out, the global economy looks fairly good right now. Holdings of the SPDR Gold Shares Trust dropped 6.67 tonnes yesterday to 1,211.57 tonnes.

A Wall Street Journal report, also an earlier one, ascribed gold's recovery last night to bargain hunting.

"There's been steady (gold) buying through the day although we have some offers around $1,407," said a Hong Kong based trader.

Brokers remain confident that gold's resurgence from its January low of $1,308 will continue into March.

"Gold is now only 2% off its record high ($1,431.30/oz) and one gets the feeling it will continue to be boosted by inflation threats, geopolitical factors and from a return of investment," said MKS Finance.

The article also noted that the plummet in oil yesterday was due to the Saudi Arabian rulership assuring the world that any slack in Libyan oil production could be met from Saudi Arabian sources. That tumble triggered yesterday's plummet in gold.

A rally that started just before regular trading began continued as the session got rolling, but ran out of gas shortly before 8:30 when it peaked at $1,407. At 8:30, fourth-quarter U.S. GDP was revised downwards from 3.2% annualized growth to 2.8%. The revision was made because consumers and state government spent less than was originally estimated. The metal didn't take very well to the revision, falling back to around $1,405. As of 8:44, the spot price was $1,405.50 for a gain of $3.40 on the day. The Kitco Gold Index assigned +$5.20's worth of change to predominant buying and -$1.80's worth to greenback strengthening. The U.S. Dollar Index dropped on the revision, but partially recovered; as of 8:47, it was at 77.20.

Although gold fluctuated all told, $1,400 has held. That's good news and supports the contention that gold merely fell out of bed yesterday. There is evidence that Asian buyers have moved their bargain points up with the rally. Gold may dither today, and may be afflicted by yet another afternoon slump, but there is support at $1,400. It may be enough to keep the metal from falling sustainably to the 1390s. There is enough demand for gold to rack up another weekly gain, barring a highly unlikely plummet.

Gold Plummets In Late Afternoon On Rumour Gadaffi Was Shot

Again, gold descended during the electronic-trading part of regular trading - but this time, it was with a vengeance. Gold followed oil down after a rumour spread which said Libyan ruler Muammar Gadaffi had been shot. That rumour later proved to be untrue, but it exposed an air pocket in gold. A Wall Street Journal report, written before the rumour caught fire, has a quote with a skeptical take on the rally. The drop explosed tiredness that was already there. Partially reversed at the end of the electronic-trading hitch, it bumped gold from a small gain to a fairly substantial - almost double-digit - loss.

The metal started regular trading above $1,415. Hit with good news on the jobless-claims and durable-goods front, it descended below $1,415 at 9 AM ET. Not stopping until a little after 10:00, it settled into a range between $1,410 and $1,415 that was broken briefly on the low side around 11:20 and tested on the high side in early afternoon.

At the time the rumour spread, gold was a little above $1,415 but not successful at breaking out of that range on the high side. It started to slump around 1:45, and then suffered through a two-stage roller-coaster drop that left it at $1,402. A reaction that pulled it up a little above $1,405 gave way to a thud taking it down to its daily low of $1,391.40. Recovering to just above $1,395, the metal had enough relief in its rally to get above $1,400 again; the last forty-five minutes saw almost no fluctuation. At the end of regular trading, the spot price was $1,402.10 for a drop of $9.60 on the day. The Kitco Gold Index attributed -$14.70 to predominant selling and +$5.10 to a weakening greenback.

Gold's six-month chart, from Stockcharts.com, shows today's thud as an all-but complete reversal of yesterday's gains:



It;s been a nice run these last four-odd weeks, but it had to come to an end sometime. As noted yesterday, gold's Relative Strength Index (RSI, found above at the top of its chart) went on an unusully complete round trip from all-but oversold to overbought. There are times during bull runs when the RSI stayed in overbought territory for some time, but this rally was not to be one of them.

There's a chance that this afternoon's drop will merely prove to be gold falling out of bed. It was triggered by a rumour that proved to be false, but the air pocket showed that the metal is feasting upon present troubles. Resolution, whether by assassination or less galvanizing means, will lead to it descending. Its pullback today, if not reversed, will keep it in its long-term $1,325 - $1,425 range: it was near the top when it plummeted. Should today's drop preface a pullback, the metal will likely stop between $1,360 and $1,380. It won't go back to levels it saw near the end of January. If gold merely fell out of bed, it may pause for a bit to collect its wits.

As for the U.S. Dollar Index, it again had one of those mornings. Strangely, the good economic news released at 8:30 AM only caused a blip-up; soon afterwards, the Index was falling again. Its early-morning slump didn't end until it had touched 77.0. A brief run-up gave way to a temporary low of 76.975 just before 10:30. After trying and failing to reach 77.25, it settled into a range between 77.05 and 77.15; it slid into the lower-middle part of that range in later afternoon. As of 5:30, it was at 77.08.

Its own six-month chart, also from Stockcharts.com, shows it bouncing off a significant support level - that same 77.0:



At the bottom of its chart are the Moving Average Convergence-Divergence lines. Today, they crossed over into a bearish configuration. That doesn't bode well for the Index, although staying above 77.0 would suggest indeterminacy rather than an outright drop. If it does fall through, 76 beckons; so does a new six-month low. How the Index acts from here will show whether or not it's in for another string of drops. I should add that it didn't react either way to the now-scotched rumours about Gadaffi's assassination.

As for gold, it reacted badly. Even if today's drop is the harbinger of a short-term pullback, the metal's still in a good position. Its rally has been strong and fairly smooth, and accompanied by a lot of skepticism. Market timers haven't gone gaga over gold while it's been rising, which suggests there's not that much air in the air pocket all told. If a pullback, the metal will be in a position for a fairly healthy advance once it gets its mojo back.

World Gold Council Gets Behind Tech Innovation

Unbeknownst to old-style chemists, gold has proved to have use as a catalyst. Gold nanoparticles are already showing their stuff in medical treatments. The trouble with these procedures is they have a hard time getting out of the lab. The World Gold Council has decided to do something about it, setting up a committee to matchmake between gold innovators and venture capitalists.

The WGC has released a study "Gold, The hidden element in innovation" that identifies how gold has been instrumental in "ground-breaking" advances, while also pointing the way to gold's future use in "a multitude of new products and processes" that look particularly apposite both to medical uses and environmental protection....

Highlights of recent developments include:

• Professor T. Pradeep at the Indian Institute of Technology in Madras is a leading expert in water technology and nanomaterials and he has shown that gold nanoparticles can detect and remove pesticides, halogenated organics and heavy metals from drinking water. Meanwhile Professor Michael Wong at Rice University in Houston has developed a gold-palladium nanoparticles catalyst that shows incredibly high activity in deconstructing a common chlorinated pollutant (trichloroethylene) into harmless constituents. The Council is supporting a collaborative partnership between the team at Rice University and catalyst developers Mintek in South Africa. Early results from the work are impressive; a pilot facility is under construction at a major chemical company site in the US.
• Emission Control Catalysts. Nanostellar, in the Silicon Valley, has developed NS Gold TM. This is designed for use in the automotive sector, using gold alongside platinum and palladium in emission control catalysts. WGC invested in Nanostellar to accelerate the commercialisation of the technology, which is due to go into production during this quarter.

Gold is also proving to be a vital catalyst in the production of Vinyl Acetate Monomer, a chemical useful in resins and paints. It has the potential of elbowing out the more toxic catalyst mercury.


This trend will lead to a sea change for gold investors; normally gold-related companies looking for the big strike are explorers. It's worth watching, as it puts the drop on the old saw about gold having no use...even if the long-term result might be to make gold only a commodity, in the sense of a consumable product.

A Different Kind Of Protection From Gold

People who acquire gold for protection normally do so to protect wealth, but there's a case of a man whose gold may have protected his life. He was shot at by his younger brother and the bullet was deflected by his gold tooth.

Walter [Davis, 22] was struck in the upper lip and doctors at Interim Louisiana State University Public Hospital said all they found was a bullet fragment near his left nostril. Paramedics said the victim told them the bullet ricocheted off his gold tooth.

He didn't want to press charges against his brother, but the police nabbed the guy anyway.


And they say gold has no use...

Alchemy Being Rehabilitated

No, it's not being reintroduced to society like astrology's been: by "rehabilitated," I mean winning new respect from historians of science. Although alchemists never turned lead into gold, they pioneered primitive chemistry and came up with useful processes.

For example, alchemists could be considered as an early form of industrial researcher. William Newman of the University of Indiana points out that alchemists "integrated a host of pursuits that can be loosely labeled 'chemical technologies' with an experimental practice that was linked to various theories about the nature and operations of minerals and metals."

Newman provides plenty of examples. Alchemists, he says, were active in assaying metals, refining salts, making dyes and pigments, making glass and ceramics, artificial fertilizers, perfumes, and cosmetics. An alchemists' shop was often the place in a town where you would go for medicine. Even today in many parts of Europe you go to "the chemist," for medicine, rather than to a "drug store."

Of interest to some is the fact that alchemists were skilled distillers, although the article is careful to note that their distillation skill was deployed to make strong acids. Interestingly, those acids were used to seperate metals from their ores.


It makes me wonder: was "lead" a name affixed to gold ore that looked something like shale? Is that the source of the lead-into-gold myth?

January New Home Sales Slump 12.6%

Reversing December's gain, new home sales slumped by 12.6% to 284,000 units; expectations were for 300,000 units. Inventories of new homes increased to 7.6 months.


As it turned out, gold didn't react well to the good data released during the 8:30 time slot. After stabilizing, the metal turned downwards and sunk to $1,412 before turning up to $1,414. Jitters over this release got gold down to $1,411 shotly after 10:00, the metal again turned up to the $1,414 level.

Gold Headed For Blow-Off Top?

A Globe and Mail report contains Capital Economics' answer to an intriguing question: is gold headed for an all-out bubbleish blow-off top? Capital's answer is, "it might be." Its accompanying forecast is less exuberant than would be expected for a bubble: as high as $1,600 this year and $2,000 sometime next year.

Drawing parallels between now and 1979, although noting that 1980's blow-off top took place with a background of double-digit inflation, Capital's Julian Jessup says that the outlook for gold is on balance more favourable that 1980's.

"The global financial crisis has left serious doubts about the creditworthiness of governments and financial institutions that underwrite paper assets. At the very least, interest rates are likely to remain very low in the advanced economies, thus minimizing the opportunity cost of holding an asset like gold that does not pay any income. We do not expect the major central banks to start to reverse their quantitative easing any time soon either.

"Gold is also now firmly established as a mainstream financial assets, exemplified in the fact that central banks were net buyers in 2010 for the first time in 21 years. The continued rapid growth in emerging economies, including China and India, means that fundamental demand for gold is now stronger too."

Even if the troubles that have raged for weeks in the Middle East ease, Mr. Jessop sees other "economic and financial shocks" that could boost gold, including the fallout from a debt crisis in Japan, the threat of a U.S.-China trade war, and uncertainty over the fate of the embattled euro.

"And even if inflation is unlikely to take off, the havoc that deflation would bring to heavily-indebted economists might prove to be just as supportive for gold."

My own take? There is flammable fuel for an all-out upward fire, but no spark as of yet. I don't see any candidate other than a ramp-up in developed-world inflation. The main barrier to entry into gold has been the opinion that inflation is a non-problem in the U.S. and Europe. The U.S.-as-Japan analogy still lives. A jump in inflation would be the game-changer that would provide the spark - particularly if the Fed and ECB act too late, on the assumption that an inflation flare-up is only anomalous.

How high could gold go if a hot-gas bubble develops? Last time, gold peaked at a price that fully discounted the metal covering all of M1. Using today's figures, and assuming that gold goes that high, $5,000 would be the bubble peak. My own wild guess is $3,000.

That said, a bubble is not a certainty.

Indian Physical Gold Buyers Still Leery, But Some Buying

According to a Reuters report webbed by Business Standard, buying was muted due to high prices but there was some action due to the need to stock up for the harvesting and wedding season.

"There were some deals at $1,414 (an ounce)," said a dealer with a state-run bullion dealing bank, adding, "Most of the orders are there at $1,408."

The buy prices have been moving up with gold, suggesting that more Indian buyers are becoming acclimatized to the rally.

Gold Inches Up Nearer Record In Calmer Early Morning

After a run up to $1,415 last evening, gold sunk back down to $1,410 last night as the excitement cooled off. Stuck near there, as of midnight ET, the metal dipped below $1,410 briefly in late Hong Kong trading, but recovered and smoothly ran up to $1,415 just before the London market opened. Once trading began in the U.K., the metal fluctuated around $1,415 with little direction except for a blip-up just before 8 AM. Interestingly, the Hong Kong run-up was mostly concurrent with a rally in the greenback. As of 8:08 AM, the spot price was $1,416.60 for a gain of $4.90 on the day. The Kitco Gold Index split the gain into +$0.95 for predominant buying and +$3.95 for weakening of the greenback.

The U.S. Dollar Index went on a mostly-downward roller coaster ride. Starting off the evening with a decline, sinking to 77.2, but steadied up before midnight. A slight dip preceded a strong rally that took it up to almost 77.5 by 3:05. Then turning downwards, the Index tumbled to 77.05 and briefly touched 77.0. Recovering again, it could only make a little above 77.25 before slumping again. As of 8:13, it was at 77.17.

A Bloomberg/Business Week article said demand for gold was boosted by the continued turmoil in Libya.

“Gold is poised to challenge December’s all-time high,” James Moore, an analyst at TheBullionDesk.com in London, said in a report. “The mix of safe-haven demand, inflation concerns and strong retail demand continues to support higher prices.”...

“Escalating unrest in Libya and rising oil prices have encouraged gold safe-haven buying and fueled concerns over inflation, which also benefits gold,” Mark Pervan, senior analyst with ANZ Banking Group Ltd., wrote in a note..

The article also notes that holdings in ten Bloomberg-tracked ETFs rose slightly yesterday. From a nine-month low of 2,014.79 tonnes, yesterday's holdings gained 0.6 tonnes to reach 2,015.39.

A Reuters article, webbed by the Globe and Mail, said Libyan unrest and soaring oil prices helped push gold up higher to a new record.

“This move in gold right now is acutely about the Middle East. The trade is about fear but people are viewing it as an extension of the inflation trade,” said James Dailey, portfolio manager of the TEAM Asset Strategy Fund.

The article notes that the base-metal star of the recovery trade, copper, took a hit from margin selling yesterday. Although physical gold is selling briskly, holdings of the SPDR Gold Shares Trust declined 4.855 tonnes to 1,218.243 tonnes two days ago. They were unchanged yesterday.

A Wall Street Journal article said gold rose because it's being used to hedge against continuing political risk and in sympathy with higher oil prices.

"High oil prices, if sustained, will tax consumers, restrain economic activity and fuel inflation—a central banker's nightmare and a gold bug's dream," said Jeffrey Nichols, managing director of consultancy American Precious Metals Advisors.

The article points out that excitement is rising as gold nears its record high, but cautions about volatility.

8:30 was a busy time for watchers of the U.S. economy. The weekly initial jobless claims number came in: for last week, it dropped below 400,000 to come in at 391,000. Expectations were for 405,000. Continuing claims also dropped. January durable-goods orders also came in better than expected, 2.5%, with transportation orders being the star of the report. Had transportation been excluded, orders would have dropped. December's number was revised sharly upwards: from -2.3% to only -0.4%.

The gold market got the jitters just before the reports were released, stumbling down to $1,415 just before 8:30, but took the actual data in stride. As of 8:42, the spot price was $1,415.80 for a gain of $4.10 on the day. The Kitco Gold Index divided the gain into +$0.70 for predominant buying and +$3.40 for greenback weakening. The U.S. Dollar Index took the data in stride too, although it dropped a bit just before the releases. A blip-up after the data's dissemination didn't last. As of 8:46, it was at 77.11.

Although building on yesterday's double-digit gain, gold is calming down and spending more time fluctuating instead of trending one way or the other. There may indeed be downward volatility today, as an afternoon post-pit-session slump is becoming a regular event. Eyes are on $1,431.25: that's the interday record high. As gold stands, it's only a little more than fifteen dollars away right now.

Gold Ends Above $1,410 On Libyan Turmoil, Dropping Greenback

The protests in Lybia are sweeping the nation. Gadaffi is clinging to power, making for the beginnings of an all-out civil war. A lot of the army has defected over to the other side, and there are signs that Gadaffi and his supporters are being beaten back to a rump in Tripoli. The escalating tension has provided a fertile climate for gold to rally, but the greatest jump this morning was prompted by a slide in the U.S. Dollar Index. Gold closed above $1,410, with a double-digit gain, leaving $1,400 in the dust. The metal is only one strong rally day from challenging its record high of $1,431.

It started off regular trading by drifting downwards, which did not reverse until 9:30 AM ET. At that point, the greenback slid from above 77.55 to below 77.25. It falling, combined with the brew of tension, got gold rallying strongly from 9:30 to 10:30. In that hour, the metal gained almost twelve dollars an ounce. Levelling off when the greenback recovered, it hovered around $1,412 and then inched up. A final burst upwards just before 1:00 enabled it to rack up a daily high of $1,417.80.

After that peak came the afternoon letdown, but today's bottomed at $1,408 - well above its level at early morning. After some hesitation, it inched upwards again as the electronic-trading hitch neared the end. At the close of regular trading, the spot price was $1,411.70 for a gain of $12.70 on the day. The Kitco Gold Index split the gain into +$4.90 due to predominant buying and +$7.80 due to a weakening greenback.

Gold's six-month chart, from Stockcharts.com, shows it getting close to its $1,420 resistance level:



To all appearances, the metal is in a strong bull run. In less than a month, it's added more than $100 to its price with little pullback along the way. Its Relative Strength Index level, found at the top of its chart, is characteristic of a bull-market run. Gold doesn't get to a smidgen below the 70 overbought level except in bull market phases. To go all the way from the verge of oversold to the verge of overbought is fairly unusual for the metal. Normally, an oversold condition is seen during corrections or consolidation phases; during the former, the RSI doesn't get much above the 50 neutral level. During full-bore upward runs, RSI tends to sink to neutral but doesn't get much below. Even at the start of its fall run in late July, the RSI didn't get much below 40 before gold took off.

I'm harping upon this round trip from oversold to overbought because it shows gold possessing unusual strength right after a correction. The metal's daily high was about fourteen dollars away from making a new record.

Turning to the U.S. Dollar Index: as indicated above, its slight rally early in the morning turned into a swift decline that left it briefly below 77.25. The other safe haven isn't doing so well now that oil is ratcheting up; in fact, it's no competition for gold at all. Recovering after that tumble, the Index climbed back up but couldn't touch 77.5. Giving up, it eased downwards for the rest of the afternoon. As of 5:30, it was at 77.36.

Its own six-month chart, also from Stockcharts.com, shows it breaking below a significant level today - that same 77.5:



As is evident from the chart, the Index has broken through the neckline that makes for a completed head and shoulders top. Unusually, this top is a continuation pattern: it indicates that the Index's January fall is going to go farther. How much farther, I cannot say - but I wouldn't be surprised if it challenges its January low of 77.0. If it breaks below and stays there, then it will have established a lower intermediate-term low that will solidify a downtrend. I have to say I regret my chipper comment earlier about not betting against the greenback.

The U.S. Dollar falling while gold is rising, is a break from recent crisis patterns. Beforehand, both rose: they doing so in tandem is the main reason why the traditional negative correlation between the two has sometimes turned positive. This crisis is different: it hearkens back to the '70s. Gold might pull back if Lybia falls and brings an end to the suspense, but it will have had a surprisingly good run nonetheless. It might also have enough gas to rack up to a new record high beforehand.

Jordan Roy-Byrne Suggests Dumping U.S. Stocks For Gold

Both gold and U.S. stocks undergo long-term cycles; their length is such that it's impossible for them to be equilibrated away. When one asset is in a long-term bull market, the other languishes. Back in the '80s and '90s, gold languished while stocks took off. For a decade or so, it's been the reverse. Given that reversal, a call to move from stocks to gold makes sense.

Jordan Ray-Byrne is aware of U.S. stocks' range-bound performance. He's recommending a switch from stocks to gold as the former approach a multi-year resistance level.

Data from a Bank of America Merrill Lynch survey of asset managers and hedge funds who cumulatively manage nearly $1 trillion shows what percentage are overweight or underweight US equities. The percentage of managers overweight US equities has soared in recent months and is basically at a 10-year high.

The 12-week MA of Investors Intelligence bulls is at its highest level since January 2007. There is good chance it will surpass the 2007 level in the coming weeks.

This growing bullish sentiment will coincide with the S&P 500 hitting major multi-year resistance. Excessive bullish sentiment coupled with multi-year resistance is not exactly a recipe for a major breakout. It’s a recipe for the end to this cyclical bull market.

Moreover, as we’ve noted time and time again, the factors that will cause stocks to reverse are the same factors that will propel Precious Metals into the early stages of a bubble. Increased monetization will be required as interest rates begin to rise and as the economy fails to grow fast enough to mitigate the debt burden. New debts and the rollover of old debts will be financed at higher rates, thereby increasing the debt burden which in turn, impacts the governments ability to juice the economy....

The reason he gives for switching into gold is that it's underowned despite the inflation risk. Bullish sentiment for gold is low, and the metal seems to attract a lot of media attention only when it pulls back. There's still a lot of disbelief in the metal, which means it can keep climbing a wall of skepticism.

Gold is providing an excellent opportunity. Its holding up well while the focus is currently elsewhere. The hot money is out of Gold, yet its only 3% off its highs. In the long run, that is scary bullish. In the coming months look for stocks to peak and for Gold to regain its leadership....

It's hard to argue with his reasoning. A lot of the enthusiasm for stocks has been caused by the doubling of the S&P from its March '09 low, but some of it is rooted in the hope for a "Bernanke put." In this stage of the game, any such put is likely to be under gold - not stocks. We're stuck in what's likely to be a stagflationary period.

Ghanian Gold Projected To Disappear In 2061

Here's one for the supporters of peak gold. Some participants in an Institute of Economic Affairs (IEA) forum on trade for sustainable development are claiming that Ghana will run out of gold in fifty years' time unless new reserves are found.

Currently, Ghana, the second largest gold producer in Africa and the 10th in the world, produces some 2.9 million ounces of gold per year, approximately four percent of global production.

Despite being one of the largest commodity exchange earners for the nation, gold yielded a return of only $2 for every $1 spent from1990 to 2009.

Dr. Tutu, a Senior Research Fellow of the IEA, urged government to invest and develop mining communities since they would have nothing after the mines are closed.

According to him, Ghana should take a cue from South Africa, where mining communities, including Johannesburg, have been turned into big cities.

From 1990 to 2009, $9.02 billion investments in minerals earned the nation 19.6 billion from gold.

However, total foreign exchange earnings for cocoa over the same period was $13.9 billion, with an investment of about $818 million.

This prediction echoes earlier predictions of the world (or a region) running out of oil. So far, those predictons have been confounded - no wonder why this one's been hedged. Still, it's a tantalizing one that fits the peak-gold scenario...provided that it's remembered that the gold being referred to is economically-available gold.

WOW Gold Farmer Gets Robbed Of Bullion

It's unfortunate that her name and game got noticed in the media due to her being robbed, but Kristina Fincham has an unusual career. She's a World of Warcraft gold farmer, who plays the game to accumulate gold and sell it for real money to hungry players. There are lots of gold farmers about, but she's one who took the proceeds and invested them in real gold. Sadly, her hoard has been stolen.

An Australian woman is suing her insurer over the theft of 74 bars of real gold bullion worth $74,549, which she bought using profits made from gold farming in World of Warcraft.

Adelaide Now reports that Kristina Fincham was a (clearly successful) gold farmer in WoW who sold in-game gold to players in return for substantial profits. For reasons unknown, she then decided to convert the profits from the WoW gold into real-world gold bullion.

Reason unknown? Gold to gold has a neatness to it, and the reason can be easily discerned by looking at a ten-year gold chart.

Sales Of First Spouse Gold Coins Jump

The U.S. Mint is finding it easy to sell any mint product with gold in it, even the 1/2 oz First Spouse coins. According to a report from Coin Update News, weekly sales of First Spouse coins jumped to the highest level in two months.

In the middle of the reporting period, the United States Mint raised the prices for most numismatic gold coins, in line with the increased market value of gold. Collectors may have placed heavier orders ahead of the price change in order to take advantage of the lower prices. Across all available options, the US Mint sold 759 of the one-half ounce gold coins, compared to 380 in the previous period.

Another factor at play might be the unexpected sell out of the proof version of the James Buchanan’s Liberty First Spouse Gold Coin. The US Mint struck fewer coins than the maximum authorized mintage based on demand forecasts, and this proved to be short of meeting demand for the entire sales cycle. If the US Mint underestimated the number of coins to produce for this issue, it may also be possible for other issues....

That underestimation of demand does not apply to the Mrs. Lincoln coin. I know I'm speculating here, but President Lincoln does not have a good reputation in revisionist libertarian circles. That revisionism likely had something to do with the low sales of that particular coin.

Needless to say, the newfound popularity of the entire series is also caused by increasing demand for physical gold.

Existing Home Sales Rise 2.7% In January

The National Association of Realtors' estimate of existing home sales rose 2.7% in January to 5.36 million from a downwardly-adjusted 5.22 million in December. This number was above expectations for 5.22 million in January. There's some indication that the NAR may have overestimated home sales by as much as 20% due to a flawed model [so this number should be taken with a grain of salt.] The median price, though, dropped to $158,000 - the lowest since April of 2002.


After sinking to as low as $1,402 by 9:30, gold began rallying before the number was released. Reaching almost $1,409 just after the release, the metal pulled back a bit and continued climbing. Perhaps the question marks surrounding the data helped, but a fall of the U.S. Dollar Index to new lows makes for a better candidate.

Indian Physical Gold Buying Slow But Back

According to a Reuters report webbed by the Economic Times, Indian traders have stepped back into the buying ring due to a slight fall in gold and rise in the rupee.

India gold eased a tad from its highest level in seven weeks on Wednesday weighed by a stronger rupee, leaving traders unenthused as they waited for bigger falls to stock up for the wedding season demand, dealers said.

"There are a few orders. I have priced in for 25 kgs below $1,400 (an ounce)," said a dealer with a state-run, bullion importing bank in Mumbai....

Traders and dealers said buying appetite could resurface if prices decline below the keenly-watched $1,400 an ounce level.

So, to a modest extent, upwards price acclimatization has set in. The bargain point is now $1,400.

Gold Climbs Back Above $1,400

Gold didn't start off that well when the overnight session got moving. Fluctuating between $1,395 and $1,400 last night, it crept up above $1,400 at 2 AM ET and eased itself into a higher range of $1,400-$1,405. A decaying U.S. dollar had its influence, although its drop phase coincided with gold's. The news that more Bank of England Monetary Committee members wanted to raise the BoE rate - this time, three out of nine - didn't deter gold. Evidently, the gold market is either assuming the rate will stay at 0.5% next month or is getting used to the idea that a rate hike is a sign of inflation getting out of hand.

Although gold stayed in the higher range, it overall trend was a slow move upwards. As of 8:07, the spot price was $1,404.00 for a gain of $5.00 on the day. The Kitco Gold Index attributed -$0.70 to predominant selling and +$5.70 to a weakening greenback.

The U.S. Dollar Index spent last night and some of this morning declining, with a respite to break up the two stages of droppage. By 2:35 AM ET, it had touched 77.40. Then rising, it failed to get above 77.6 and lost its upward momentum as it reintroduced itself to its earlier low. As of 8:13, it had rebounded a little to reach 77.48.

A Bloomberg article said gold was buoyed by worries of increasing inflation and continued Mideast turmoil.

Libyan leader Muammar Qaddafi in a television address yesterday vowed to fight a growing rebellion until his “last drop of blood.” The dollar declined against the euro on speculation rising fuel costs will put further pressure on European Central Bank policy makers to combat inflation. Gold typically moves inversely to the greenback and traded within 2 percent of the record.

Gold “will continue to be boosted by geopolitical factors, inflation threats, and from a return of investment,” Tom Pawlicki, an analyst at MF Global in Chicago, said today in a report. Still, prices “have progressed to overbought levels,” which may pressure the metal, he said.

The article also mentions Euro Monetary Council member Yves Mersch musing publicly about the need to do something about Eurozone inflation. The drop in ETF holdings is continuing, with 10 gold ETFs tracked by Bloomberg seeing their holdings drop 4.86 tonnes yesterday to 2,014.8 tonnes. All of that drop was from the SPDR Gold Shares Trust.

An earlier Reuters report, covering the night stretch of the overnight session, said gold declined last night because bargain hunting has drained away and ETF holdings have declined.

"For the rally to continue, I think we need to cross $1,410. If that level is breached, then gold may hit a new high," said a dealer in Singapore.

"But my concern is the ETF ... the volume is not picking up. Technically, the market seems overbought. These are some of the factors which could somewhat cap the upside for gold going forward. What really matters is whether the tension in the Middle East will escalate further."

Also noted was the holdings of the SPDR Gold Shares Trust dropping 4.855 tonnes to 1,218.243 tonnes yesterday. Another quoted gold dealer said there was bargain hunting at the low end of gold's range last night. A meeting of the mainland Chinese Congress is scheduled, with high inflation high on the agenda.

The morning Wall Street Journal report said gold has firmed up on Mideast turmoil.

One precious metals trader said he expects the gold market to continue to gain as the unrest in the Middle East and North Africa as well as inflation fears and re-emerging worries about the financial health of some European governments create a price floor.

But Commerzbank warned gold "seems to be caught" around $1,400 an ounce and struggling to rally.

Also quoted is ETF Securities, which linked last week's Portugese debt troubles to gold's rise.

No news on the U.S. economy was released at 8:30, so gold had to find its own way. The range held, with the metal bouncing off $1,405 at the start of the pit session and then declining a little as pit trading got rolling. As of 8:41, gold was again $1,404.00 for a gain of $5.00 on the day. The Kitco Gold Index assigned -$0.45's worth fo change to predominant selling and +$5.45's worth to greenback weakening. The U.S. Dollar Index, after inching up to 77.50, dropped a little as its recovery lost momentum. As of 8:44, it was at 77.47.

One little-noticed feature of this rally was the slowness of gold's reaction to previously galvanizing events until the Egypt protests exploded. Its hesitation in the face of earlier troubles showed its distance from the spotlight back then: the continued drops in ETF holdings while it goes up evinces skepticism. The metal is still climbing a wall of worry, and shows the ability to put on gains when attention is focused elsewhere. It might suffer a pullback, but any such decline won't be that strong. As for today, $1,400 is the level to watch for: the recently habitual afternoon decline might not show up.

Gold, After Sagging, Closes Below $1,400; Winning Streak Broken

It was close for a time, but gold trended downwards just before noon ET and traded listlessly just below $1,400 for most of the afternoon. A mid-afternoon rally feebly tried to get and stay above the round number but didn't do the trick. At regular trading's end, the metal posted a sizable single-digit loss. The six-day winning streak is broken.

The day started out fairly well after the metal shook off an overnight decline which took it briefly below $1,395. Jumping up to $1,403 when the pit session got rolling, the metal stayed above $1,400 until mid-morning when it declined in anticipation of a good consumer-confidence number - one well above expectations. Once the news was released, it stalled and then turned upwards as demand picked up due to more trouble in Libya. Vaulting as high as $1,407.50, the metal lost ground along with oil as technical selling entered the market. Just after noon, gold lost more than ten dollars an ounce to bottom around $1,396.

Then climbing to $1,399, it rallied listlessly and was interrupted by a pullback in the middle. Bobbing around $1,400 in mid-afternoon, the metal sunk again but bottomed at a higher level than was reached by the before-noon slide. There was little last-minute rallying, and what little there was got almost erased by the time the electronic-trading hitch ended. At the end of regular trading, the spot price was $1,399.00 for a drop of $7.60 on the day. The Kitco Gold Index split the loss into -$5.50 due to predominant selling and -$2.10 due to greenback strengthening.

Gold's six-month chart, from Stockcharts.com, shows an upwards common gap due to yeaterday's hiatus:



Standard gap analysis says this gap is likely to be filled by a decline, but it should be remembered that there would be no gap had yesterday's action been included in the chart. That noted, there is a chance that gold will come down simply because it's gone up so much. Its Relative Strength Index number, found at the top of its chart, is close to overbought. That's a fairly good performance this soon after a new record high. The length of time spent in a bullish configuation by the Moving Average Convergence-Divergence lines at the bottom of its chart is more characteristic of a bull market than a bear market or even a consolidation.

That said, gold is presumptively in a range-bound consolidation phase until a new record high is made. Anyone who thinks that the metal's shaken off its doldrums and is prepared to take out $1431 is free to act on such an assumption, but the typical action of gold after a nice run like last fall's is to consolidate. Should gold follow suit once again, its current price is at the higher-risk zone with respect to an intermediate-term entry point.

After a strong two-stage run in overnight trading, the U.S. Dollar Index sunk back down and spent a fairly quiet day in today's regular session. Initially slumping, it didn't reverse itself until mid-morning. Then, its lesser rally couldn't get it up above 77.9. Slumping back down again, it ended up zeroing in on 77.8. As of 5:30, it was at 77.805.

Its own six-month chart, also from Stockcharts.com, shows its action on Monday as well as today. Today's candlestick's large upper wick shows its overnight strength:



The small body of the candle, though, does shows the muted trading of today. It seems to be poised for more climbing, but any further rallies should be treated skeptically unless it gets well above 79.5. Its recent turnaround still looks like a countertrend rally, a break between last month's droppage and - possibly - next month's. Of note is the fact that the greenback has not been rallying that strongly due to the Mideast and North African crisis. Gold, of course, has.

Given that gold's six-day winning streak is now history, the question remains about where it goes next. This month's rally has been treated skeptically, including by me, in part because the Mideast crisis was a fortuitous boooster of the metal. In its absence, gold would likely have been more hesitant and more obviously range-bound. The crisis can't last, and gold's fate will be influenced by the level it's at when the turmoil's ebbed. The pre-noon slide may be a harbinger or it may be an aberration, like declines earlier on in this rally. Asian buyers stopped co-operating last night: if they return to buying, then gold will be cushioned against any serious decline from this level. It's their call.